Quashing under Section 138 refused where compensation for acquired mortgaged property did not conclusively extinguish debt.

A plea that a Section 138 Negotiable Instruments Act complaint should be quashed because the mortgaged property was acquired and compensation was paid was rejected, as receipt of compensation did not by itself prove that the entire liability stood discharged. Section 73(2) of the Transfer of Property Act was noted as preserving the mortgagee's right to claim the mortgage money from the compensation, in whole or in part, so any shortfall remained a matter for trial. The Court also held that whether a legally enforceable debt survived raised disputed factual questions that could not ordinarily be decided in a Section 482 CrPC quashing petition; the statutory presumption would be tested at trial.

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Issues: (i) Whether complaints under Section 138 of the Negotiable Instruments Act could be quashed on the ground that the mortgaged property had been acquired and the secured creditor had received compensation; (ii) Whether the existence or extinction of a legally enforceable debt, in the background of compensation received against the mortgaged property, could be decided in proceedings under Section 482 of the Code of Criminal Procedure, 1973.

Issue (i): Whether complaints under Section 138 of the Negotiable Instruments Act could be quashed on the ground that the mortgaged property had been acquired and the secured creditor had received compensation.

Analysis: The loan transaction and execution of mortgage were admitted. The Court noted that the property was acquired and the secured creditor received compensation, but held that Section 73(2) of the Transfer of Property Act, 1882 embodies the principle of substituted security and entitles the mortgagee to claim the mortgage money out of the compensation, in whole or in part. Receipt of compensation did not, by itself, establish that the entire liability stood discharged. Whether there remained a shortfall and whether recovery could still be pursued against the borrowers was not a matter to be conclusively determined at the threshold.

Conclusion: The complaints were not liable to be quashed on this ground.

Issue (ii): Whether the existence or extinction of a legally enforceable debt, in the background of compensation received against the mortgaged property, could be decided in proceedings under Section 482 of the Code of Criminal Procedure, 1973.

Analysis: The Court held that the defence that the debt had been discharged, or that no legally enforceable liability survived, raised disputed questions of fact. In proceedings for quashing, the statutory presumption arising on issuance of cheque continues to operate, and the accused must rebut it at trial. The Court relied on the settled principle that such factual defences, including the plea that the cheque was not enforceable after compensation was received, cannot ordinarily be adjudicated in a petition to quash the prosecution under Section 138 of the Negotiable Instruments Act.

Conclusion: The question of legally enforceable debt was left to be decided at trial, and quashing was refused.

Final Conclusion: The criminal original petitions failed, and the Section 138 prosecutions were permitted to proceed, with the petitioners relegated to their defence before the trial court.

Ratio Decidendi: In a prosecution under Section 138 of the Negotiable Instruments Act, a plea that the underlying liability stood discharged because compensation was received for acquired mortgaged property raises a disputed factual defence that cannot ordinarily be determined in quashing proceedings under Section 482 of the Code of Criminal Procedure, 1973; the statutory presumption must be tested at trial.

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